The Acquittal of Nawaz Sharif

 

Libor scandal: the bankers who fixed the world’s most important number

Liam Vaughan and Gavin Finch in The Guardian


At the Tokyo headquarters of the Swiss bank UBS, in the middle of a deserted trading floor, Tom Hayes sat rapt before a bank of eight computer screens. Collar askew, pale features pinched, blond hair mussed from a habit of pulling at it when he was deep in thought, the British trader was even more dishevelled than usual. It was 15 September 2008, and it looked, in Hayes’s mind, like the end of the world.

Hayes had been woken up at dawn in his apartment by a call from his boss, telling him to get to the office immediately. In New York, Lehman Brothers was hurtling towards bankruptcy. At his desk, Hayes watched the world processing the news and panicking. As each market opened, it became a sea of flashing red as investors frantically dumped their holdings. In moments like this, Hayes entered an almost unconscious state, rapidly processing the tide of information before him and calculating the best escape route.

Hayes was a phenomenon at UBS, one of the best the bank had at trading derivatives. So far, the mounting financial crisis had actually been good for him. The chaos had let him buy cheaply from those desperate to get out, and sell high to the unlucky few who still needed to trade. While most dealers closed up shop in fear, Hayes, with a seemingly limitless appetite for risk, stayed in. He was 28, and he was up more than $70 million for the year.

Now that was under threat. Not only did Hayes have to extract himself from every deal he had done with Lehman, he had also made a series of enormous bets that in the coming days interest rates would remain stable. The collapse of Lehman Brothers, the fourth-largest investment bank in the US, would surely cause those rates, which were really just barometers of risk, to spike. As Hayes examined his trading book, one rate mattered more than any other: the London interbank offered rate, or Libor, a benchmark that influences $350 trillion of securities and loans around the world. For traders such as Hayes, this number was the Holy Grail. And two years earlier, he had discovered a way to rig it.

Libor was set by a self-selected, self-policing committee of the world’s largest banks. The rate measured how much it cost them to borrow from each other. Every morning, each bank submitted an estimate, an average was taken, and a number was published at midday. The process was repeated in different currencies, and for various amounts of time, ranging from overnight to a year. During his time as a junior trader in London, Hayes had got to know several of the 16 individuals responsible for making their bank’s daily submission for the Japanese yen. His flash of insight was realising that these men mostly relied on inter-dealer brokers, the fast-talking middlemen involved in every trade, for guidance on what to submit each day.

Brokers are the middlemen in the world of finance, facilitating deals between traders at different banks in everything from Treasury bonds to over-the-counter derivatives. If a trader wants to buy or sell, he could theoretically ring all the banks to get a price. Or he could go through a broker who is in touch with everyone and can find a counter-party in seconds. Hardly a dollar changes hands in the cash and derivatives markets without a broker matching the deal and taking his cut. In the opaque, over-the-counter derivatives market, where there is no centralised exchange, brokers are at the epicentre of information flow. That puts them in a powerful position. Only they can get a picture of what all the banks are doing. While brokers had no official role in setting Libor, the rate-setters at the banks relied on them for information on where cash was trading.

Most traders looked down on brokers as second-class citizens, too. Hayes recognised their worth. He saw what no one else did because he was different. His intimacy with numbers, his cold embrace of risk and his unusual habits were more than professional tics. Hayes would not be diagnosed with Asperger’s syndrome until 2015, when he was 35, but his co-workers, many of them savvy operators from fancy schools, often reminded Hayes that he wasn’t like them. They called him “Rain Man”.

By the time the market opened in London, Lehman’s demise was official. Hayes instant-messaged one of his trusted brokers in the City to tell him what direction he wanted Libor to move. Typically, he skipped any pleasantries. “Cash mate, really need it lower,” Hayes typed. “What’s the score?” The broker sent his assurances and, over the next few hours, followed a well-worn routine. Whenever one of the Libor-setting banks called and asked his opinion on what the benchmark would do, the broker said – incredibly, given the calamitous news – that the rate was likely to fall. Libor may have featured in hundreds of trillions of dollars of loans and derivatives, but this was how it was set: conversations among men who were, depending on the day, indifferent, optimistic or frightened. When Hayes checked the official figures later that night, he saw to his relief that yen Libor had fallen.

Hayes was not out of danger yet. Over the next three days, he barely left the office, surviving on three hours of sleep a night. As the market convulsed, his profit and loss jumped around from minus $20 million to plus $8 million in just hours, but Hayes had another ace up his sleeve. ICAP, the world’s biggest inter-dealer broker, sent out a “Libor prediction” email each day at around 7am to the individuals at the banks responsible for submitting Libor. Hayes messaged an insider at ICAP and instructed him to skew the predictions lower. Amid the chaos, Libor was the one thing Hayes believed he had some control over. He cranked his network to the max, offering his brokers extra payments for their cooperation and calling in favours at banks around the world.

By Thursday, 18 September, Hayes was exhausted. This was the moment he had been working towards all week. If Libor jumped today, all his puppeteering would have been for nothing. Libor moves in increments called basis points, equal to one one-hundredth of a percentage point, and every tick was worth roughly $750,000 to his bottom line.

For the umpteenth time since Lehman faltered, Hayes reached out to his brokers in London. “I need you to keep it as low as possible, all right?” he told one of them in a message. “I’ll pay you, you know, $50,000, $100,000, whatever. Whatever you want, all right?”

“All right,” the broker repeated.

“I’m a man of my word,” Hayes said.

“I know you are. No, that’s done, right, leave it to me,” the broker said.

Hayes was still in the Tokyo office at 8pm when that day’s Libors were published. The yen rate had fallen 1 basis point, while comparable money market rates in other currencies continued to soar. Hayes’s crisis had been averted. Using his network of brokers, he had personally sought to tilt part of the planet’s financial infrastructure. He pulled off his headset and headed home to bed. He had only recently upgraded from the superhero duvet he’d slept under since he was eight years old.

Hayes’s job was to make his employer as much money as possible by buying and selling derivatives. How exactly he did that – the special concoction of strategies, skills and tricks that make up a trader’s DNA – was largely left up to him. First and foremost he was a market-maker, providing liquidity to his clients, who were mostly traders at other banks. From the minute he logged on to his Bloomberg terminal each morning and the red light next to his name turned green, Hayes was on the phone quoting guaranteed bid and offer prices on the vast inventory of products he traded. Hayes prided himself on always being open for business no matter how choppy the markets. It was his calling card.

Hayes likened this part of his job to owning a fruit and vegetable stall. Buy low, sell high and pocket the difference. But rather than apples and pears, he dealt in complex financial securities worth hundreds of millions of dollars. His profit came from the spread between how much he paid for a security and how much he sold it for. In volatile times, the spread widened, reflecting the increased risk that the market might move against him before he had the chance to trade out of his position.

All of this offered a steady stream of income, but it wasn’t where the big money came from. The thing that really set Hayes apart was his ability to spot price anomalies and exploit them, a technique known as relative value trading. It appealed to his lifelong passion for seeking out patterns. During quiet spells, he spent his time scouring data, hunting for unseen opportunities. If he thought that the price of two similar securities had diverged unduly, he would buy one and short the other, betting that the spread between the two would shrink.

Everywhere he worked, Hayes set up his software to tell him exactly how much he stood to gain or lose from every fraction of a move in Libor in each currency. One of Hayes’s favourite trades involved betting that the gap between Libor in different durations would widen or narrow: what’s known in the industry as a basis trade. Each time Hayes made a trade, he would have to decide whether to lay off some of his risk by hedging his position using, for example, other derivatives.

Hayes’s dealing created a constantly changing trade book stretching years into the future, which was mapped out on a vast Excel spreadsheet. He liked to think of it as a living organism with thousands of interconnected moving parts. In a corner of one of his screens was a number he looked at more than any other: his rolling profit and loss. Ask any decent trader and he will be able to give it to you to the nearest $1,000. It was Hayes’s self-worth boiled down into a single indisputable number. 

Tom Hayes was a phenomenon at UBS, one of the best the bank had at trading derivatives. Photograph: Bloomberg via Getty Images

By the summer of 2007, the mortgage crisis in the US caused banks and investment funds around the world to become skittish about lending to each other without collateral. Firms that relied on the so-called money markets to fund their businesses were paralysed by the ballooning cost of short-term credit. On 14 September, customers of Northern Rock queued for hours to withdraw their savings after the bank announced it was relying on loans from the Bank of England to stay afloat.

After that, banks were only prepared to make unsecured loans to each other for a few days at a time, and interest rates on longer-term loans rocketed. Libor, as a barometer of stress in the system, reacted accordingly. In August 2007, the spread between three-month dollar Libor and the overnight indexed swap – a measure of banks’ overnight borrowing costs – jumped from 12 basis points to 73 basis points. By December it had soared to 106 basis points. A similar pattern could be seen in sterling, euros and most of the 12 other currencies published on the website of the British Bankers’ Association each day at noon.

Everyone could see that Libor rates had shot up, but questions began to be asked about whether they had climbed enough to reflect the severity of the credit squeeze. By August 2007, there was almost no trading in cash for durations of longer than a month. In some of the smaller currencies there were no lenders for any time frame. Yet, with trillions of dollars tied to Libor, the banks had to keep the trains running. The individuals responsible for submitting Libor rates each day had no choice but to put their thumb and forefinger in the air and pluck out numbers. It was clear that their “best guesses” were unrealistically optimistic.

A game of brinkmanship had developed in which rate-setters tried to predict what their rivals would submit, and then come in slightly lower. If they guessed wrong and input rates higher than their peers, they would receive angry phone calls from their managers telling them to get back into the pack. On trading floors around the world, frantic conversations took place between traders and their brokers about expectations for Libor.

Nobody knew where Libor should be, and nobody wanted to be an outlier. Even where bankers tried to be honest, there was no way of knowing if their estimates were accurate because there was no underlying interbank borrowing on which to compare them. The machine had broken down.

Vince McGonagle, a small and wiry man with a hangdog expression, had been at the enforcement division of the Commodity Futures Trading Commission (CFTC) in Washington for 11 years, during which time his red hair had turned grey around the edges. A practising Catholic, McGonagle got his law degree from Pepperdine University, a Christian school in Malibu, California, where students are prepared for “lives of purpose, service and leadership”.

While his classmates took highly paid positions defending companies and individuals accused of corporate corruption, McGonagle opted to build a career bringing cases against them. He joined the agency as a trial attorney and was now, at 44, a manager overseeing teams of lawyers and investigators.

McGonagle closed the door to his office and settled down to read the daily news. It was 16 April, 2008, and the headline on page one of the Wall Street Journal read: “Bankers Cast Doubt on Key Rate Amid Crisis”. It began: “One of the most important barometers of the world’s financial health could be sending false signals. In a development that has implications for borrowers everywhere, from Russian oil producers to homeowners in Detroit, bankers and traders are expressing concerns that the London interbank offered rate, known as Libor, is becoming unreliable.”

The story, written at the Journal’s London office near Fleet Street, went on to suggest that some of the world’s largest banks might have been providing deliberately low estimates of their borrowing costs to avoid tipping off the market “that they’re desperate for cash”. That was having the effect of distorting Libor, and therefore trillions of dollars of securities around the world.

The journalist’s sources told him that banks were paying much more for cash than they were letting on. They feared if they were honest they could go the same way as Bear Stearns, the 85-year-old New York securities firm that had collapsed the previous month.

The big flaw in Libor was that it relied on banks to tell the truth but encouraged them to lie. When the 150 variants of the benchmark were released each day, the banks’ individual submissions were also published, giving the world a snapshot of their relative creditworthiness. Historically, the individuals responsible for making their firm’s Libor submissions were able to base their estimates on a vibrant interbank money market, in which banks borrowed cash from each other to fund their day-to-day operations. They were prevented from deviating too far from the truth because their fellow market participants knew what rates they were really being charged. Over the previous few months, that had changed. Banks had stopped lending to each other for periods of longer than a few days, preferring to stockpile their cash. After Bear Stearns there was no guarantee they would get it back.

With so much at stake, lenders had become fixated on what their rivals were inputting. Any outlier at the higher – that is, riskier – end was in danger of becoming a pariah, unable to access the liquidity it needed to fund its balance sheet. Soon banks began to submit rates they thought would place them in the middle of the pack rather than what they truly believed they could borrow unsecured cash for. The motivation for low-balling was not tied to profit – many banks actually stood to lose out from lower Libors. This was about survival.

Ironically, just as Libor’s accuracy faltered, its importance rocketed. As the financial crisis deepened, central bankers monitored Libor in different currencies to see how successful their latest policy announcements were in calming markets. Governments looked at individual firms’ submissions for clues as to who they might be forced to bail out next. If banks were lying about Libor, it was not just affecting interest rates and derivatives payments. It was skewing reality.

There was no inkling at this stage that traders such as Hayes were pushing Libor around to boost their profits, but here was a benchmark that relied on the honesty of traders who had a direct interest in where it was set. Libor was overseen by the British Bankers Association (BBA). In both cases, the body responsible for overseeing the rate had no punitive powers, so there was little to discourage firms from cheating.

When McGonagle finished reading the Wall Street Journal article, he emailed colleagues and asked them what they knew about Libor. His team put together a dossier, including some preliminary reports from within the financial community. In March, economists at the Bank for International Settlements, an umbrella group for central banks around the world, had published a paper that identified unusual patterns in Libor during the crisis, although it concluded these were “not caused by shortcomings in the design of the fixing mechanism”.

A month later, Scott Peng, an analyst at Citigroup in New York, sent his customers a research note that estimated the dollar Libor submissions of the 18 firms that set the rate were 20 to 30 basis points lower than they should have been because of a “prevailing fear” among the banks of “being perceived as a weak hand in this fragile market environment”.

While there was no evidence of manipulation by specific firms, McGonagle was coming around to the idea of launching an investigation.

In 2009, Hayes was lured away from UBS to join Citigroup. The head of Citigroup’s team in Asia, the former Lehman banker Chris Cecere, a small, goateed American with a big reputation for finding new ways to make money, had been given millions of dollars to attract the best talent – and Hayes was his round-one pick.

It wasn’t just the $3m signing bonus that had won Hayes over. The promise of a fresh start at one of the world’s biggest banks, with him at centre stage in its aggressive expansion into the Asian interest-rate derivatives market, had proved too tempting to resist. After persuading him to join, Cecere boasted to colleagues that he’d found “a real fucking animal”, who “knows everybody on the street”.

 

Citigroup in Canary Wharf, London Photograph: DBURKE / Alamy/Alamy

Cecere set in motion plans for Citigroup to join the Tibor (Tokyo interbank offered rate) panel which, Hayes would crow, was even easier to influence than Libor because fewer banks contributed to it. Hayes wanted to hit the ground running when he started trading, and being able to influence the two benchmarks that helped determine the profitability of the bulk of his positions was an important step. Another was bringing Citigroup’s own London-based Libor-setters on board.

On the afternoon of 8 December, Cecere was at his desk on the Tokyo trading floor. He had an office but seldom used it, preferring to be amid the action. He believed that six-month yen Libor was too high. After checking the submissions from the previous day, he was surprised to see that Citigroup had input one of the highest figures.

Cecere contacted the head of the risk treasury team in Tokyo, Stantley Tan, and asked him to find out who the yen-setter was and request that he lower his input by several basis points. It turned out the risk treasury desk in Canary Wharf was responsible for the bank’s Libor submissions.

“I spoke to our point man in London,” Tan wrote back to Cecere that afternoon. “I have asked him to consider moving quotes [lower]”.

Cecere checked the Libors again later that night and was annoyed to see that Citigroup had only reduced its six-month rate by a quarter of a basis point.

He wrote to Tan, “Can you speak with him again?”

The following day, Tan went back to the treasury desk in London as requested. He also forwarded the message chain to Andrew Thursfield, Citigroup’s head of risk treasury in London. The response he got back from his UK counterpart left little room for misinterpretation: it was a thinly veiled warning to back off.

Hayes, who sat just behind his boss, was not on the email chain, but Cecere sent it to him.

Thursfield was a straitlaced man in his forties who had spent more than 20 years in risk management at Citigroup after joining as a graduate trainee. He saw himself as the guardian of the firm’s balance sheet and didn’t take kindly to being told how to do his job by a pushy trader who knew nothing of the intricacies of bank funding.

Rather than lowering the inputs, Thursfield’s team increased its submission days later, pushing the published Libor rates higher. Hayes would have to try a different tack. On 14 December he sent an email to his London counterpart, asking him to approach the rate-setters directly.

“Do you talk to the cash desk and did we know in advance?” Hayes asked, referring to the bank’s decision to bump up its Libor submissions. “We need good dialogue with the cash desk. They can be invaluable to us. If we know ahead of time we can position and scalp the market.”

What Hayes didn’t realise was that no amount of schmoozing was going to get the rate-setters onside. Unlike some banks, Citigroup was taking the CFTC’s investigation into Libor seriously. In March 2009, Thursfield had personally delivered an 18-page presentation via video link to investigators on the rate-setting process. The cash traders weren’t about to risk their necks for someone they didn’t know who worked on the other side of the world.

It wasn’t just that they knew they were being watched. Thursfield was not only a stickler for the rules but had taken a personal dislike to Hayes when the pair had met three months earlier. It was October 2009, shortly after Hayes had accepted the job at Citigroup, and his boss had sent him to London to meet the bank’s key players.

“Good to meet you. You can help us out with Libors. I will let you know my axes,” Hayes said by way of an opening gambit when he was introduced to Thursfield.

Unshaven and dishevelled, Hayes told the Citigroup manager how the cash desk at UBS frequently skewed its submissions to suit his book. He boasted of his close relationships with rate-setters at other banks and how they would do favours for each other. Hayes was trying to charm Thursfield, but he had badly misjudged the man and the situation. The following day Thursfield called his manager, Steve Compton, and relayed his concerns.

“Once you stray on to talking about Libor fixings, I mean we just paid another $75,000 bill to the lawyer this week for the work they’re doing on the CFTC investigation,” Thursfield said. “Whoever is the desk head, or whatever, [should] have a close watch on just what he’s actually doing and how publicly. It’s all, you know, very much barrow-boy-type [behaviour].”

The knock on Hayes’s door came at 7am on a Tuesday, two weeks before Christmas 2012. Hayes padded down the bespoke pine staircase of his newly renovated home in Woldingham, Surrey, to let in more than a dozen police officers and Serious Fraud Office investigators. A year before, he had been fired from Citigroup, and shortly afterwards returned to the UK, where he married his girlfriend Sarah Tighe.

Hayes stood at his wife’s side as the officers swept through the property, gathering computers and documents into boxes and loading them into vehicles parked at the end of the gravel driveway. The couple had only moved in a fortnight before. Their infant son was upstairs in bed. Traffic was heavy by the time the former trader was led to the back of a waiting car. The 20-mile crawl from Surrey to the City of London passed in silence.

Bishopsgate police station is a grey, concrete building on one of the financial district’s busiest thoroughfares. In a formal interview, Hayes was told he had been brought in to answer questions relating to allegations that between 2006 and 2009 he had conspired to manipulate yen Libor with two of his colleagues. Hayes responded that he planned to help but would need time to consider the 112 pages of evidence so would not be answering any questions that day. It was late when he arrived back in Surrey.

In June, Barclays had become the first bank to reach a settlement with authorities, admitting to rigging the rate and agreeing to pay a then-record £290 million in fines. From the moment Barclays had settled, sparking a political firestorm that burned for weeks, Hayes’s destiny had been leading to this point. The Serious Fraud Office (SFO), which had previously resisted launching a probe into Libor rigging, was forced to reverse its position and on 6 July issued a statement announcing it would be undertaking a criminal investigation. That week the government launched its own review into the scandal. The British public and its politicians were out for scalps.

On 19 December, eight days after his arrest, Hayes was at home on his computer when a news bulletin popped up with a link to a press conference in Washington. As cameras flashed, Attorney General Eric Holder and Lanny Breuer, head of the Justice Department’s criminal division, took turns outlining the $1.5bn settlement the authorities had reached with UBS over Libor. The Swiss bank, they explained, had pleaded guilty to wire fraud at its Japanese arm. Then came the sucker punch.

“In addition to UBS Japan’s agreement to plead guilty, two former UBS traders have been charged, in a criminal complaint unsealed today, with conspiracy to manipulate Libor,” said Breuer. “Tom Hayes has also been charged with wire fraud and an antitrust violation.” Neither Tan nor Cecere has ever been charged with wrongdoing.

At that moment the full horror of the situation hit Hayes for the first time. The two most powerful lawyers in the US planned to extradite him on three separate criminal charges, each carrying a 20–30 year sentence. Less than 24 hours later, a member of Hayes’s legal team was on the phone to the SFO to discuss cutting a deal.

Fighting the charges seemed futile: the UBS settlement made reference to more than 2,000 attempts by Hayes and his colleagues to influence the rate over a four-year period. He was the star attraction, the “Jesse James of Libor”, as he would later tell it. The US authorities had yet to issue extradition papers, but it was only a matter of time.


RBS, Barclays and other banks fined in Swiss franc Libor case



So began a race to convince the SFO to take on Hayes as a sort of chief informant, who in return would receive leniency and, more importantly, an agreement that he would be dealt with in the UK.

To secure this arrangement Hayes had to agree to tell the SFO everything he knew and promise to testify against everybody involved. Crucially, he also had to plead guilty to dishonestly rigging Libor. It was not enough to admit trying to influence the rate. He had to confess that he knew it was wrong.

During two days of so-called scoping interviews to test his knowledge of the case, Hayes talked openly about his campaign to rig Libor, for the first time in his life. At the SFO’s offices near Trafalgar Square he admitted he had acted dishonestly and brought the investigators’ attention to aspects of the case they knew nothing about. The interviews covered everything from his entry into the industry and his trading strategies to how the Libor scheme began and the various individuals who helped him rig the rate. They barely had to prod to get him to talk. Hayes seemed to relish reliving moments from his past. His voice sped up when he talked about heady days piling into positions, squeezing the best prices from brokers and playing traders off against each other.

“The first thing you think is where’s the edge, where can I make a bit more money, how can I push, push the boundaries, maybe you know a bit of a grey area, push the edge of the envelope,” he said in one early interview. “But the point is, you are greedy, you want every little bit of money that you can possibly get because, like I say, that is how you are judged, that is your performance metric.”

Paper coffee cups piled up as Hayes went over the minutiae of the case. At one stage, Hayes was asked about how he viewed his attempts to move Libor around. The exchange would prove crucial.

“Well look, I mean, it’s a dishonest scheme, isn’t it?” Hayes said. “And I was part of the dishonest scheme, so obviously I was being dishonest.”

This article is adapted from The Fix: How Bankers Lied, Cheated and Colluded to Rig the World’s Most Important Number by Liam Vaughan and Gavin Finch

The Economics of Sex

Record fines for currency market fix

BBC 
• From the sectionBusiness

Five of the world's largest banks are to pay fines totalling $5.7bn (£3.6bn) for manipulating the foreign exchange market, US officials say.

Four of the banks - JPMorgan, Citigroup, Barclays, RBS - have agreed to plead guilty to US criminal charges.

The fifth, UBS, will plead guilty to rigging benchmark interest rates.

Barclays was fined the most, $2.4bn, as it did not join other banks in November to settle investigations by UK, US and Swiss regulators.

US Attorney General Loretta Lynch said that "almost every day" for five years from 2007, currency traders used a private electronic chat room to manipulate exchange rates.

Their actions harmed "countless consumers, investors and institutions around the world", she said.

Cartel threat

Regulators said that between 2008 and 2012, several traders formed a cartel and used chat rooms to manipulate prices in their favour.

One Barclays trader who was invited to join the cartel was told: "Mess up and sleep with one eye open at night."

Several strategies were used to manipulate prices and a common scheme was to influence prices around the daily fixing of currency levels.

A daily exchange rate fix is held to help businesses and investors value their multi-currency assets and liabilities.

'Building ammo'

Until February, this happened every day in the 30 seconds before and after 16:00 in London and the result is known as the 4pm fix, or just the fix.

In a scheme known as "building ammo", a single trader would amass a large position in a currency and, just before or during the fix, would exit that position.

Other members of the cartel would be aware of the plan and would be able to profit.

"They engaged in a brazen 'heads I win, tails you lose' scheme to rip off their clients," said New York State superintendent of financial services Benjamin Lawsky.

MCC: the greatest anachronism of English cricket

by Maxie Allen in The Full Toss • March 16, 2012

There’s been an outbreak of egg-and-bacon-striped handbags at dawn. Sir John Major’s resignation from the Main Committee of the MCC, in a row about redevelopment plans at Lord’s, has triggered a furious war of words in St John’s Wood.

Put simply, the former prime minister took umbrage at the process by which the MCC decided to downgrade the project. He then claimed that Phillip Hodson, the club’s president, publicly misrepresented his reasons for resigning, and in response Sir John wrote an open letter to set the record straight, in scathing terms.

The saga has been all over the cricket press, and even beyond, in recent weeks – underlining the anomalously prominent role the MCC continues to maintain within the eccentric geography of English cricket.

To this observer it’s both puzzling and slightly troubling that the people who run cricket, and the mainstream media who report on it, remain so reverentially fascinated by an organisation whose function has so little resonance for the vast majority of people who follow the game in this country.

Virtually anything the Marylebone Cricket Club do or say is news – and more importantly, cricket’s opinion-formers and decision-makers attach great weight to its actions and utterances. Whenever Jonathan Agnew interviews an MCC bigwig during the TMS tea-break – which is often – you’d think from the style and manner of the questioning that he had the prime minister or Archbishop of Canterbury in the chair.

Too many people at the apex of cricket’s hierarchy buy unthinkingly into the mythology of the MCC. Their belief in it borders on the religious. A divine provenance and mystique are ascribed to everything symbolised by the red and yellow iconography.  The club’s leaders are regarded as high priests, their significance beyond question.

The reality is rather more prosaic. The MCC is a private club, and nothing more. It exists to cater for the wishes of its 18,000 members, which are twofold: to run Lord’s to their comfort and satisfaction, and to promote their influence within cricket both in England and abroad. The MCC retains several powerful roles in the game – of which more in a moment.

You can’t just walk up to the Grace Gates and join the MCC. Membership is an exclusive business. To be accepted, you must secure the endorsement of four existing members, of whom one must hold a senior rank, and then wait for twenty years. Only four hundred new members are admitted each year. But if you’re a VIP, or have influential friends in the right places, you can usually contrive to jump the queue.

Much of the MCC’s clout derives from its ownership of Lord’s, which the club incessantly proclaims to be ‘the home of cricket’. This assertion involves a distorting simplification of cricket’s early history. Lord’s was certainly one of the most important grounds in the development of cricket from rural pastime to national sport, but far from the only one. The vast majority of pioneering cricketers never played there – partly because only some of them were based in London.

Neither the first test match in England, not the first test match of all, were played at Lord’s. The latter distinction belongs to the MCG, which to my mind entitles it to an equal claim for history’s bragging rights.

The obsession with the status of Lord’s is rather unfair to England’s other long-established test grounds, all of whom have a rich heritage. If you were to list the most epic events of our nation’s test and county history, you’d find that only a few of them took place at Lord’s. Headingley provided the stage for the 1981 miracle, for Bradman in 1930, and many others beside. The Oval is where test series usually reach their climax. In 2005, Edgbaston witnessed the greatest match of all time.

Lord’s is only relevant if you are within easy reach of London. And personally, as a spectator, the place leaves me cold. I just don’t feel the magic. Lord’s is too corporate, too lacking in atmosphere, and too full of people who are there purely for the social scene, not to watch the cricket.

Nevertheless, Lord’s gives the MCC influence, which is manifested in two main ways. Firstly, the club has a permanent seat on the fourteen-member ECB Board – the most senior decision-making tier of English cricket. In other words, a private club – both unaccountable to, and exclusive from, the general cricketing public – has a direct say in the way our game is run. No other organisation of its kind enjoys this privilege. The MCC is not elected to this position – neither you nor I have any say in the matter – which it is free to use in furtherance of its own interests.

It was widely reported that, in April 2007, MCC’s then chief executive Keith Bradshaw played a leading part in the removal of Duncan Fletcher as England coach. If so, why? What business was it of his?

The MCC is cricket’s version of a hereditary peer – less an accident of history, but a convenient political arrangement between the elite powerbrokers of the English game. The reasoning goes like this: because once upon a time the MCC used to run everything, well, it wouldn’t really do to keep them out completely, would it? Especially as they’re such damn good chaps.

Why should the MCC alone enjoy so special a status, and no other of the thousands of cricket clubs in England? What’s so virtuous about it, compared to the club you or I belong to – which is almost certainly easier to join and more accessible.

What’s even more eccentric about the MCC’s place on the ECB board is that the entire county game only has three representatives. In the ECB’s reckoning, therefore, one private cricket club (which competes in no first-class competitions) deserves to have one-third of the power allocated to all eighteen counties and their supporters in their entirety.

The second stratum of MCC’s power lies in its role as custodian of the Laws of Cricket. The club decides – for the whole world – how the game shall be played, and what the rules are. From Dhaka to Bridgetown, every cricketer across the globe must conform to a code laid down in St John’s Wood, and – sorry to keep repeating this point, but it’s integral – by a private organisation in which they have no say.

Admittedly, the ICC is now also  involved in any revisions to the Laws, but the MCC have the final say, and own the copyright.

You could make a strong argument for the wisdom of delegating such a sensitive matter as cricket’s Laws to – in the form of MCC – a disinterested body with no sectional interests but the werewithal to muster huge expertise. That’s far better, the argument goes, than leaving it to the squabbling politicians of the ICC, who will act only in the selfish interests of their own nations.

But that said, the arrangement still feels peculiar, in an uncomfortable way. The ICC, and its constituent national boards, may be deeply flawed, but they are at least notionally accountable, and in some senses democratic. You could join a county club tomorrow and in theory rise up the ranks to ECB chairman. The ICC and the boards could be reformed without changing the concept underpinning their existence. None of these are true of the MCC.

Why does this one private club – and no others – enjoy such remarkable privileges? The answer lies in an interpretation of English cricket history which although blindly accepted by the establishment – and fed to us, almost as propaganda – is rather misleading.

History, as they often say, is written by the winners, and this is certainly true in cricket. From the early nineteenth century the MCC used its power, wealth and connections to take control of the game of cricket – first in England, and then the world. No one asked the club to do this, nor did they consult the public or hold a ballot. They simply, and unilaterally, assumed power, in the manner of an autocrat, and inspired by a similar sense of entitlement to that which built the British empire.

This private club, with its exclusive membership, ran test and domestic English cricket, almost on its own, until 1968. Then the Test and County Cricket Board was formed, in which the MCC maintained a hefty role until the creation of the ECB in 1997. The England team continued to play in MCC colours when overseas until the 1990s. Internationally, the MCC oversaw the ICC until as recently as 1993.

All through these near two centuries of quasi-monarchical rule, the MCC believed it was their divine right to govern. They knew best. Their role was entirely self-appointed, with the collusion of England’s social and political elite. At no stage did they claim to represent the general cricketing public, nor allow the public to participate in their processes.

The considerable authority the MCC still enjoys today derives not from its inherent virtues, or any popular mandate, but from its history. Because it has always had a leadership role, it will always be entitled to one.

The other bulwark of the MCC’s authority is predicated on the widespread assumption that the club virtually invented cricket, single-handedly. It was certainly one of the most influential clubs in the evolution of the game, and its codification in Victorian times, but far from the only one, and by no means the first. Neither did the MCC pioneer cricket’s Laws – their own first version was the fifth in all.

Hundreds of cricket clubs, across huge swathes of England, all contributed to the development of cricket into its modern form. The cast of cricket’s history is varied and complex – from the gambling aristocrats, to the wily promoters, the public schools, and the nascent county sides who invented the professional game as we know it now. Tens of thousands of individuals were involved, almost of all whom never went to Lord’s or had anything to thank the MCC for.

And that’s before you even start considering the countless Indians, West Indians, South Africans and especially Australians who all helped shape the dynamics, traditions and culture of our sport.

And yet it was the egg-and-bacon wearers who took all the credit. They appointed themselves leaders, and succeeded in doing so – due to the wealth, power and social connections of their membership. And because the winners write the history, the history says that MCC gave us cricket. It is this mythology which underpins their retention of power in the twenty first century.

Just to get things into perspective – I’m not suggesting we gather outside the Grace Gates at dawn, brandishing flaming torches. This is not an exhortation to storm the MCC’s ramparts and tear down the rose-red pavilion brick by brick until we secure the overthrow of these villainous tyrants.

In many ways the MCC is a force for good. It funds coaching and access schemes, gives aspiring young players opportunities on the ground staff, promotes the Spirit Of Cricket initiative, organises tours to remote cricketing nations, and engages in many charitable enterprises.

Their members may wear hideous ties and blazers, and usually conform to their snobbish and fusty stereotype, but no harm comes of that. As a private club, the MCC can act as it pleases, and do whatever it wants with Lord’s, which is its property.

But the MCC should have no say or involvement whatsoever in the running of English cricket. The club’s powers were never justifiable in the first place, and certainly not in the year 2012. The club must lose its place on the ECB Board. That is beyond argument.

As for the Laws, the MCC should bring their expertise to bear as consultants. But surely now the ultimate decisions should rest with the ICC.

Unpalatable though it may seem to hand over something so precious to so Byzantine an organisation, it is no longer fair or logical to expect every cricketer from Mumbai to Harare to dance to a St John’s Wood tune. This is an age in which Ireland and Afghanistan are playing serious cricket, and even China are laying the foundations. The process must be transparent, global, and participatory.

Cricket is both the beneficiary and victim of its history. No other game has a richer or more fascinating heritage, and ours has bequeathed a value system, international context, cherished rivalries, and an endless source of intrigue and delight.

But history is to be selected from with care – you maintain the traditions which still have value and relevance, and update or discard those which don’t. The role of the MCC is the apotheosis of this principle within cricket. For this private and morally remote club to still wield power in 2012 is as anachronistic as two stumps, a curved bat, and underarm bowling.

The world is run by sociopaths – but we still demand honesty at the till

The worldview of Which? has a moral clarity that is missing from nearly every other sphere of life these days

• 
• • Zoe Williams
  • The Guardian, Sunday 16 November 2014 16.29 GMT

‘Somehow we’ve retained this elemental demand for fairness. “Buyer beware” doesn’t cut it: the seller also has a responsibility not to con people.’ Photograph: Larry Lilac / Alamy

As supermarket giants puzzle over their profit warnings and the nation readies itself to spend a household average of 800 quid it doesn’t have, here’s a quick rundown of festive scams. I don’t mean drunk people in reindeer horns pretending to have lost their wallet and asking for two pounds; that’s next month.

No, I mean the ways we are ripped off in shops. I quite like an old-fashioned swindle, it gives me a sense of continuity: the person who designed the chocolate finger packet so it contains more air than finger is descended on a direct moral line from the grocer of olden days who used to hide a clog in a bag of flour. It is reassuringly simple: most of gangster capitalism is only barely understood by the people perpetrating it, and makes the victim feel foolish, not only for having been the mark in the first place but also for the sudden spotlight on their ignorance. I personally would like to see someone go to prison every time one of us is required to learn a new acronym: if we’d instituted that after the Libor scandal, would there ever have been a Forex?

Clearly, retailers couldn’t stay competitive if they didn’t keep up with the modern world of the corporate predator. Not every consumer shakedown is a period piece: the great cheese swindle, in which wholesale prices have gone down while supermarkets – apparently by wild coincidence, and certainly not because anybody thinks they’re operating as a cartel – put their prices up, has a lot in common with today’s energy market. What we need is some kind of regulatory body to monitor the undulations of milk protein. We could call it Ofcheese. I will happily take charge of that, when the time comes.

But back to the shops, where a new Which? survey suggests there are three broad categories of swindle: making you buy a thing because you think it’s better quality than it is; because you think it’s better value than it is; or because you think it’s healthier than it is. The tricks are so craven, it’s a little embarrassing to name them. The own brand might be designed to be indistinguishable from the branded version. Goodfella’s pizzas print calorie counts based on a person eating only one quarter of a pizza, which nobody has ever done since pizzas were invented. Biscuits loaded with sugar are called “light” because they have reduced their proportion of fat (what with the scandal of the air-Fingers on one hand, and McVitie’s “lite” digestives on the other, I think we could also make a case for the creation of Ofbiscuit). Fruit juices that are mainly apple are adorned with two strawberries and called “strawberry smoothie”. This has solved two mysteries that have plagued me throughout my child-rearing years: how can anyone afford to produce 300ml of pure strawberry juice? (Because that’s not what it is.) And what is the point of the word “smoothie”? (Unlike “juice”, there is no widely understood definition of the word, separate from the product. So you don’t have to name it after what it’s actually made of; you can name it after something it reminds you of.)

Department stores hunt bigger game, packaging things as “gift sets” in order to stick an unwarranted 20% on their prices. We’ve known that for years. And they engage in affective propaganda, trying to manipulate your gift-giving mindset to include people like cousins. You can snort at this, confident you will never be so sheep-like as to buy a pepper grinder for someone whose name you have been known to get wrong. But consider: do you do Halloween? There is no such thing as the successful refusnik of marketing strategies, only variations of late adopter.

What I really love about Which? surveys – indeed, the existence of Which? as an institution – is the sense of moral clarity. There is very broad-based agreement, across the political spectrum, that people selling things ought to be open and honest about what they’re selling. There is total consensus in the shopping universe that markets are social spaces, and like any other social space will only function if people treat others as they themselves would want to be treated. This certainty has gone missing from conversations elsewhere: a banking scandal always comes garnished with people arguing that the financial sector is so wedged with talent that it should be unleashed from moral codes, the better to dazzle us with its heady ambitions. Business is increasingly presented as a quixotic, ungovernable process, upon which we all rely so heavily, and to which we should render such gratitude, that it is not for us to question it. Inevitably, this comes with the expectation that the successful entrepreneur or innovator will be sociopathic – indeed, that that’s what marks him or her out as so special: the ability to separate themselves from the muddled matters of trust and sympathy that beset the world of the non-entrepreneur. And yet, somehow, we’ve retained this elemental demand for fairness at the till. “Buyer beware” doesn’t cut it: the seller also has a responsibility not to con people. Granted, it’s not a responsibility they take very seriously, least of all at Christmas, but it’s heartening that we’re still bothering to articulate it.

Incidentally, the way to prevent overspending in supermarkets and department stores is to wear headphones piping extremely loud, motivational music; it doesn’t have to be anti-consumerist in content, just bouncy, the kind of thing joggers listen to. It does more than speed up your progress around the shop, it taps into a part of your psyche that doesn’t need unnecessary stuff because it already feels great. Complaining about shops and their moral deficiencies is necessary but insufficient. I would like to see shops treated a bit more like shoplifters – prosecuted for dishonesty even when it seems petty – and shoplifters treated a bit more like shops.

For now I just need an iPod, and my red-blooded resistance will commence.

More banking scandals to come, admits Treasury Minister Andrea Leadsom

Andrew Grice in The Independent

More scandals in the financial sector are in the pipeline, the Treasury Minister responsible for the City of London has admitted.

Andrea Leadsom, who previously worked in banking and finance for 25 years, warned that there were more "cringeworthy announcements" to come and that there was "still a lot of baggage" in the financial industry.

Ms Leadsom, who held senior roles at Barclays and Invesco Perpetual before becoming an MP, told the parliamentary magazine The House there was still a long way to go change the City’s culture. Asked whether it is learning the lessons of the financial crisis, she replied: "I would say that at the top echelons of the banks, absolutely. But I think there's quite a long way to go to really change the culture. I think it did become very transaction-oriented and I think it will take time to recover that. I think we are still going to see a lot of cringeworthy announcements."

She admitted that when she heard about the Libor interbank lending rate scandal, she thought: “Well, if Libor is rigged, then what wasn’t rigged?”

Mrs Leadsom said: "We've had a number of issues over bank wrongdoing. There are inquiries going on, there are some pretty serious allegations out there, we've still got PPI going on. There are still things happening and redress under way. So it's quite difficult to just forget about that and move on. There's still a lot of baggage.”

Shortly after she was appointed Treasury Economic Secretary in April, The Independent revealed that she had previously used trusts to reduce her potential tax bill and offshore banking arrangements for her buy-to-let property company.

In the interview, Ms Leadsom declined to say whether she would vote in favour of the HS2 project - even though it is championed by her Treasury boss George Osborne. It would affect her South Northamptonshire constituency and while she is a backbencher, she opposed the Bill paving the way for the scheme. “I’m absolutely firmly committed to getting decent compensation and mitigation for my constituents and I think there’s a long way to go yet,” she said.

She also departed slightly from the party line on Europe, saying that there might be case for leaving the EU. The founder of the Conservative Fresh Start project aimed at getting a better deal for the UK, she said: "Obviously [if there's] a nonsense reform that doesn't achieve anything, then it might be. But at the moment I've spent four years working extremely hard trying to find things that would make it worth staying in."

Ms Leadsom dismissed calls by Tory Eurosceptics for David Cameron to set out his shopping list of demands for the renegotiation of Britain’s membership terms.

Defending the controversial Help to Buy mortgage guarantee scheme, she said: “Overwhelmingly, it's achieving its aspiration of helping people to get their first home. I get many more letters from people saying 'I'm desperate to get a mortgage, why have you done this mortgage market review?' rather than people saying 'oh, you know, property prices are ridiculously high".

Questions about India’s drug industry

NARAYAN LAKSHMAN in the hindu

 

Change that supports measures such as surprise checks on manufacturing facilities, and greater transparency in and policing of drug approval processes and clinical trials is a must. Photo: M. A. Sriram

 

Unless a deeper, institutional change is ushered in to break the nexus between drug companies and the regulatory regime, Indians consuming drugs may be exposing themselves to serious risks

Even before I walked into the Mayflower Hotel in the heart of Washington on a crisp autumn afternoon to meet Dinesh Thakur, whistle-blower and former director of India-based pharmaceutical giant Ranbaxy, I had a hunch that this conversation would spark some troubling questions on India’s malfunctioning drug industry.

On May 13, 2013, Ranbaxy pleaded guilty to seven felonies relating to drug manufacturing fraud and agreed to cough up $500 million to settle the case brought by the U.S. Department of Justice (DoJ) after eight years of investigation. The vast evidence in the case, some of it supplied by Mr. Thakur and marshalled by the U.S. Food and Drug Administration (FDA), included inspection reports compiled after multiple FDA visits to Ranbaxy plants in India — in Paonta Sahib, Himachal Pradesh, and Dewas, Madhya Pradesh.

Ranbaxy makes a long list of generic medications — 200 different “molecules”, according to its website — everything from anti-retroviral drugs to treat HIV-AIDS to commonly used antibiotics such as Amoxicillin and Cephalexin (Mox and Sporidex in India). It makes generic combinations of Paracetamol and Ibuprofen, and sells numerous over-the-counter products, such as pain relief gel Volini and cosmetic product Revital in India.

While it is apparent that Indians consume Ranbaxy drugs at a prolific rate — accounting for approximately Rs.2,600 crore, or 18 per cent of the company’s global revenue for 2012 — what is less clear is why the Indian government has not launched a vigorous investigation into the current Good Manufacturing Practices (cGMP) violations that the U.S. authorities found at multiple Ranbaxy facilities.

Go-slow approach

The Drug Controller General of India (DCGI), G.N. Singh, said in June: “When the issue has been flagged, as a regulator it is our duty to see that whatever medicines have been produced here are of assured quality.” But he did not specify the date by which a “review” of Ranbaxy’s past drug applications would be completed, leave alone committing himself to holding surprise visits to facilities aimed at investigating manufacturing standards.

This go-slow approach is all the more baffling given that, despite assurances by Ranbaxy after its admission of guilt in May that all of its other facilities adhered to the required process quality standards, a third plant, this time in Mohali, Punjab, was slapped with an import alert by the U.S. in September.

If any doubt remains about the seriousness of the claims made by the FDA so far, it is worth taking a quick look at the dossier of evidence submitted by the DoJ in the case against Ranbaxy.

Settlement documents make it clear that Ranbaxy admitted that had the seven felony charges brought by the DoJ gone to trial, the government “would have proven … beyond a reasonable doubt” that the company in 2006 had “knowingly made materially false, fictitious and fraudulent statements,” with regard to the stability testing of drugs, and in 2003, it “with intent to defraud and mislead,” failed to submit timely field reports to the FDA.

FDA investigation

According to the FDA’s investigation, Ranbaxy acknowledged violations of cGMP regulations with regard to a U.S.-distributed drug, Sotret, even as far back as 2003. That was at a time when the billionaire brothers Malvinder and Shivinder Singh owned the company. The Singh brothers sold Ranbaxy to Japanese Daiichi-Sankyo in 2008 and walked away with a cool $4.6 billion.

Nevertheless, the Sotret episode marked the beginning of a series of FDA investigations of Ranbaxy facilities in India, particularly of the two that focussed on production for U.S. markets: Paonta Sahib and Dewas, where Ranbaxy manufactured Sotret and two other popular drugs, Gabapentin and Ciprofloxacin.

Inspecting Paonta Sahib in February 2006, the FDA found no fewer than eight deviations from cGMPs. These included failure to include a complete record of all drug testing data as required by FDA guidelines, and failure to establish an adequate testing programme for the stability characteristics of drugs — essential to determine drug storage conditions and expiration dates.

Dewas was also investigated the same month and the FDA found not only a similar unavailability of quality-control data but also a “failure to extend investigations into any unexplained discrepancy,” such as testing deviations noted for specific drug batches.

Quality issues

Additional inspections of the Dewas facility in 2008 unearthed a range of quality problems. For example, there were no separately defined areas for the production and packaging of penicillin that could prevent microbiological contamination of this drug from exposure to other drugs in the vicinity. Again, quality control test failures of certain drugs were not thoroughly investigated.

These early hints ought to have set alarm bells ringing at FDA headquarters: prescribed procedures were not being followed; the required data documenting these procedures were not being compiled; and where deviations were noted, they were not being investigated. They did not appear to raise the red flag — or at least not enough of them.

Thus, in November 2011, the FDA did not see it fit to hold Ranbaxy back from selling generic Lipitor, the popular cholesterol-reducer. Blessed with a six-month exclusivity grant, the company went on to rake in $600 million in sales revenue. Only when “fate” appeared to intervene and glass particles were discovered in samples of the drug did Ranbaxy issue a massive recall notice.

Yet, if the FDA only scratched the surface of drug quality problems at three Ranbaxy facilities, then there is an enormous question mark over the extent to which other Ranbaxy facilities beyond the ken of U.S. authorities are similarly involved — a matter of great importance to the 150-odd countries in which Ranbaxy sells its products, including India.

Poor enforcement in India

In this context, the Indian drug control authorities must share some of the blame for not coming down harder on fraud. The institutional reasons for poor enforcement in India are well known. In the context of drug regulation, the point was made most poignantly by the department-related Rajya Sabha Standing Committee on Health and Family Welfare in its 59th report, on the functioning of the Central Drugs Standard Control Organization (CDSCO).

In 2012, the Standing Committee lambasted the “collusive nexus between drug manufacturers, some functionaries of CDSCO and some medical experts,” citing in one case the spurious nature of the approvals process for new drug applications made by pharmaceutical companies.

While there is much more that the DCGI and CDSCO could do, it would be unfair to say they haven’t been jolted into action by l’affaire Ranbaxy, and then again by the FDA issuing import alerts against another Indian generics company, Wockhardt.

Earlier this month, the DCGI reportedly ordered a third pharmaceutical major, Sun Pharmaceutical, to suspend clinical research activities and new drug filings and applications at its Mumbai-based bio-analytic laboratory, “after discovering that Sun didn’t have the requisite approval from the Central government for operating the laboratory.”

However, until a deeper, institutional change takes place to break the nexus between drug companies and India’s regulatory regime — a change that incorporates everything from surprise checks on manufacturing facilities to greater transparency in, and policing of, drug approvals processes and clinical trials — there is a strong likelihood that Indian consumers of drugs made by these companies have poison coursing through their veins.